Most businesses go through ups and downs; tough times and better times.
So how does a business owner know the difference between a blip and a downward trend?
Well, most business owners are technical experts in their field but generally would not be expected to recognise early warning signs of financial failure.
In so many cases we have seen business owners leave it too late – they have been through tough times before – and it may seem quite natural to back yourself. Problem is that in uncertain times it may be difficult to recognise how far along the path to insolvency you really are and it can be challenging to admit you need independent help.
Here are some common underlying reasons why a business may encounter difficulties:
1. Management issues
- Poor accounting records
- Unskilled staff processing financial information
- Accounting records not up-to-date
- Poor costing systems
- No management support for business owner
- Business owner a technician not a manager
- Not understanding basic business principles
- Lack of Management experience
2. Failure to respond to change
- Political change
- Economic change
- Changes in society (i.e. consumer attitudes)
- Changes in technology
3. External constraints to growth
- Government restrictions and regulations
- Union restrictions
- Natural disasters
- International terrorism
- Increasing trading at the expense of profit margins
- Rapid expansion such that financial and managerial resources cannot keep up with the demands placed upon them.
5. The Big Project
- A major project very large in relation to the company’s size
- Minor miscalculations in revenues and costs can be fatal
- Or a project which is significant but outside the core competency of business
6. High Gearing
- Too much debt
- Not enough financial or non-financial resources. Borrowing against your mortgage is debt, not equity.